-6 99.21049 -5 95.98653 99.59585 98.4434 -4 87.45925 93.38582 96.99375 96.98225 100.1163 98.29394 -3 90.46947 95.5001 94.79961 95.57069 97.6778 97.98188 99.60523 97.50095 98.53784 -2 95.01476 97.04909 96.52179 96.61648 97.94344 97.538 103.5001 99.75223 99.39109 99.10843 98.5735 -1 98.79923 100.1851 98.91675 97.19157 99.79753 97.34781 101.8539 99.48005 100.1569 98.39556 99.3568 0 100 100 100 100 100 100 100 100 100 100 100 1 102.0551 102.4456 101.6133 99.05 100.1255 99.03592 99.23718 100.1736 100.0833 100.691 99.62381 2 102.5024 102.3623 102.968 99.38233 100.5828 100.0317 99.77792 99.74852 100.3078 100.6018 98.70917 3 102.1346 106.0772 103.0454 101.683 100.6052 101.1012 97.65554 100.389 100.6839 100.6401 97.12091 4 101.6258 107.2396 103.0721 100.6232 101.5741 102.0339 97.08549 100.192 101.6806 100.6476 96.61888 5 100.57 106.6381 102.7018 100.903 101.5711 100.0476 101.2689 101.1935 99.99835 95.59836 6 101.6001 106.7915 101.6936 101.6938 101.145 99.09959 102.4039 100.8656 99.29139 94.49319 7 101.5425 107.4646 102.7812 102.466 101.7467 98.56461 103.896 100.4414 99.43448 93.2946 8 101.0936 108.1467 104.5983 103.9134 102.8506 99.3148 104.6949 100.4898 99.06154 92.30742 9 100.9666 108.3066 104.537 103.0684 99.64892 105.8278 100.9927 98.92554 91.2913 10 102.6331 108.8601 106.9331 103.022 99.26214 107.5151 101.1833 98.77291 90.7663 11 99.69963 111.1596 107.7875 103.8055 99.15237 108.9629 101.3488 98.15312 89.95222 12 101.3264 111.4046 109.1672 104.8678 98.8809 109.5027 101.49 97.92583 89.51449 13 103.1024 112.6864 111.2652 101.5881 111.3006 102.3446 97.84278 88.98217 14 102.6488 112.0603 102.467 112.1587 103.2147 97.60029 88.56814 15 112.8246 103.107 112.9152 103.2769 97.41108 88.48282 16 113.433 101.0918 113.0382 103.8072 97.27251 88.56243 17 116.0519 101.7876 113.4017 104.3367 97.50156 88.44135 18 118.9303 101.8454 113.4204 104.0975 97.65594 88.10658 19 120.1998 102.6851 113.5324 104.3275 97.71673 87.42725 20 121.3189 102.909 114.7379 103.8779 97.89243 87.78742 21 121.8949 115.7722 105.0663 98.2555 87.95363 22 122.9604 116.9909 105.6189 98.49864 88.52057 23 125.8256 117.2117 106.785 98.44128 88.93771 24 127.0726 118.3305 106.5341 98.4289 90.09964 25 127.3683 119.0341 107.019 90.69298 26 127.4523 120.0821 107.7368 90.56563 27 129.3421 120.9104 108.37 91.69795 28 131.3453 122.1948 109.0767 91.66886 29 133.6897 123.808 110.5485 91.86208 30 135.1927 123.6465 111.7521 92.01002 31 136.0137 124.0182 112.0435 91.94945

 

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Source: Author’s analysis of data from the National Income and Product Accounts (NIPA) of the Bureau of Economic Analysis (BEA), tables 1.1.6 and 2.1.

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This slow growth clearly delayed economic recovery for U.S. workers by years. If one takes the trajectory of spending that characterized the 1980s and assumes this had been replicated after the 2009 recovery began, state and local spending would have been $800 billion higher by the first quarter of 2013. At that point in the recovery, unemployment was still at 8%?and the Federal Reserve was years away from thinking about raising interest rates. This means that this extra spending, if financed by federal aid, would have translated directly into extra economic output and jobs. $800 billion in spending, even with modest multipliers, would have supported roughly 8 million more jobs?in that year, enough to restore the economy to pre-crisis unemployment rates (4.4%) even with higher labor force participation than prevailed in 2013. In short, state and local spending austerity by itself delayed the recovery to pre-Great Recession unemployment rates by probably about 4 years.

Another thing to note on this graph is that besides the recovery from the Great Recession, the next-slowest growth of state and local spending on record is during the recovery following the 2001 recession. This means that the past two recoveries have seen abnormally slow growth of state and local government spending. This in no way supports recent claims that states only need federal aid in the current moment because of their own profligacy. Instead, they need aid because a once-in-a-generation shock has smashed in the economy.

Finally, state and local governments are currently forecast?to be facing revenue shortfalls as large as $1 trillion over the coming years. If no help is forthcoming from the federal government to close these shortfalls, the result will be an economic disaster—one that is not confined to these governments.

Besides the obvious loss of valuable public services, cuts of this size would quickly ripple out from the public sector and destroy private-sector jobs. Filling in these shortfalls and averting these cuts would save or create more than 5 million jobs by the end of 2021, with a majority of these in the private sector. The arithmetic of this is straightforward—$1 trillion of state cuts averted between now and the end of 2021 corresponds to an average annual increase in spending of roughly $570 billion. This corresponds to $740 billion in additional economic activity when taking multiplier effects into account (for multipliers for state and local aid, see Table 1 in this). This represents just under 4% of total national income, and would support (all else equal) about 4% more employment in that year. Based on the severely depressed employment level of April 2020, this would be a bit over 5 million jobs.

These multiplier effects include the reduced spending on private-sector businesses that would result if public-sector workers were laid off, as well as the income-depressing effect of cutting needed safety net programs (Medicaid) or public goods (like public transportation or education). As households have to pay out of pocket for goods formerly provided in part by the public sector, they would have less money to spend on other businesses’ output. In the first two years following the Great Recession, federal aid to states to support Medicaid spending?has been shown to have been possibly the single most effective bit of fiscal support provided over the entire crisis.

In many ways, the economy is currently approaching a knife edge in how recovery will proceed. If the virus relents and effective public health measures are undertaken that allow a phased reopening of business, and if the federal government provides sufficient measures for relief and recovery during this crisis, then recovery could be rapid. Many workers who lost their jobs in recent months are on temporary layoff and could reestablish ties with employers quickly if confidence and demand for output was high. But this confidence and demand will be savaged if policymakers allow state and local governments’ spending to be hamstrung by the crisis. These subnational governments spend about $4 trillion every year in the economy, making them the second-largest source of spending outside of the federal government. If they are forced into crash-cutting, the entire economy will suffer. And this crash-cutting is unnecessary—the federal government has the capacity to transfer resources to these governments to keep this suffering from happening. They need to use it.

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